When asked to describe single invoice finance, entrepreneurs and business owners will refer to it as a certified game changer.
The method, a financing option used to release cash locked up in receivables or invoices, is done either by selling the rights of collection on an invoice (factoring) or by using it as a form of security or guarantee (discounting) in exchange for an advance of its value.
Take note that spot, selective or single invoice finance only involves one receivable instead of an entire bulk. It is a onetime transaction and does not cover an entire period’s worth be it weekly, monthly or annually. Because of this, the fee is likewise a onetime thing. There are no lengthy contracts which make it a very flexible solution for businesses that need a fast and fuss-free funding option.
Although single invoice finance can be broken down into factoring and discounting, the benefits are still more or less the same, as follows.
- It improves cash flows as it converts and frees up any locked up cash from a customer invoice. This not only helps provide immediate cash for use but also aids in the liquidity of the company.
- It does not affect the liabilities portion of the balance sheet making way for more attractive financial statements and lesser debts to worry about. It is an asset transaction which reflects as a decrease in trade receivables and an increase in cash. An expense account shall likewise be debited to reflect the onetime fee.
- It does not involve any interests or property collateral. Why? Refer to the above. Because of this, even smaller businesses can make use of the method. Startups, small to medium scale enterprises and even recovering entities can get hold of single invoice finance.
- The fee is fixed and agreed upon at the onset of the transaction. This makes it far more cost effective as a funding medium for entrepreneurs. Both parties shall come into agreement as to the percentage of the invoice value to be received by the financing provider. Oftentimes, this is anywhere from 10% or less.
- It provides a quick injection of cash. No more waiting just as you would other financing options. Funds are released real quick even in as fast as twenty-four hours or a day’s time. No other alternative comes close or is as fast as single invoice finance.